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Wednesday, February 10, 2010

Korea's "IT Powerhouse" Paradox

I've been puzzling a great deal these past several months over the paradoxical situation that exists in South Korea. On the one hand, this country has the most advanced and extensive digital networks in the world, yet it managed to lag behind much of the world (80 or more other countries) by two and a half years in adopting mobile broadband, as symbolized here by the Apple iPhone. How could a country that invests so much in education, R&D and infrastructure, find itself in this situation? The following are some thoughts I have. They are only initial attempts to find an answer, and I'd love to receive some incisive comments on this post.

The information and communications technology (ICT) and telecommunications sectors in Korea are dominated by large companies, including the chaebol groups. Inside these large companies the workers and the labor unions exert a great deal of influence, making it difficult for them to adapt quickly to technological change.

The established mobile service providers, along with the manufacturers of handsets and network equipment, were making a lot of money with the current arrangments, so why upset the apple cart by introducing the iPhone or Android phones to the Korean market? If we include the government here, another interpretation could be that, while profitable in the very short term, this was a costly policy mistake for Korea over the medium to long term.

Finally, I cannot help but observe that language and culture played a role in all of this. After all, Koreans have not yet widely adopted Google as an internet search engine, preferring Naver to search within a Korean-language walled-garden. Heavy dependence on Naver and other Korean language portals, along with overly-heavy reliance on Microsoft, undoubtedly contributed to the lag in introducing real mobile broadband via the iPhone and Android phones.

These are some of my preliminary thoughts. What is missing in this picture? I invite your comments.

1 comment:

I recently found your blog and so far I really enjoyed your posts. I am studying economics PhD in US right now. So my opinion is from economics.

First of all, IT sector and market in Korea are promising and relatively have some advantage from other countries because of the geographically proper size of country, the tastes of Korean and so on. Even though the large size companies have a hard time to change, the bigger size can create the efficiency, in economics, it is called "increasing returns to scale." Like what we observed after adopting iPhone, Apple's market share keep increasing. In the government point of view, we want to protect our national companies to succeed in the future. I agree with your argument in the long term or mid term perspective. The other issue about this type of industries is that this industry follows "two-sided market" characteristics. One of the striking results from the two-sided market is sometimes monopoly is appropriate for the society point of view. From now on, economist and legal authorities also beleive that monopoly is kind of evil for the society but nowadays we need to be careful about this type of issues. Korean portal site has been really special too relative to the world wide observation. I am not 100% sure that Korea Government policies about IT are proper. However, following some new researches in economics, I can understand the direction of the policy. But as you know, it cannot be intended from the government it's just from the old legal and political systems.